CCEA approved 49 percent Foreign Investment in Insurance Sector

The Union Cabinet on 24 July 2014 gave its approval to 49 percent foreign investment in insurance companies through the FIPB route ensuring management control in the hands of Indian promoters.

The decision was taken in the meeting of the Cabinet Committee on Economic Affairs (CCEA) headed by Prime Minister Narendra Modi. With this decision, the FDI cap in insurance sector has been raised from 26 percent to 49 percent.

It is important to note that in his first budget speech in the Lok Sabha, the Union Finance Minister, Arun Jaitley had explained that the insurance sector is investment starved and there is a need to increase the composite cap in the sector to 49 percent, with full Indian management and control, through the FIPB route.

The move will probe beneficial for the insurance firms, which will now be able to enjoy much needed capital from overseas partners.

Important Facts

The proposal of raising the FDI limitation was introduced in 2008 when UPA government introduced the Insurance Laws (Amendment) Bill to hike foreign holding in insurance joint ventures to 49 percent from the existing 26 percent.

The insurance sector was opened up for private sector in 2000 after the enactment of the Insurance Regulatory and Development Authority Act, 1999 (IRDA Act, 1999).

This Act permitted foreign shareholding in insurance companies to the extent of 26 percent with an aim to provide better insurance coverage and to augment the flow of long term resources for financing infrastructure.

The industry has been demanding for long to increase the FDI limit for adequate funds for expansion of the sector.

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